The Flint Fan Corporation is considering the addition of a new model fan, the F-

Question

The Flint Fan Corporation is considering the addition of a new model fan, the F-27, to its current products. The expected cost and revenue data for the F-27 fan are as follows:

  

If the F-27 is added as a new product, it is expected that the contribution margin of other products will drop by $7,000 per year.

At what selling price would the new product be just breaking even?

$52.25 per unit

$50.50 per unit

$55.75 per unit

$49.00 per unit

Annual sales 4,000 units Unit selling price $58 Unit variable costs:    Production $34    Selling $4 Avoidable fixed costs per year:    Production $20,000    Selling $30,000 Allocated common fixed costs per year $55,000

Explanation / Answer

Flint Fan Corporation F-27 Fans Details Amt $ Unit Selling Price                                        58 Unit variable cost Production                                        34 Unit Variable cost selling                                           4 Total Unit Variable cost                                        38 Direct Fixed cost Production                                20,000 Direct Fixed cost Selling                                30,000 Total Direct Fixed Costs                                50,000 Assume required BEP unit sales Price =x Units sold                                  4,000 Sales revenue 4000x Variable cost                              152,000 Contribution =4000x-152000 4000x-152000=50000 4000x=202000. x=202000/4000 =                                  50.50 So unit selling price for break even = $50.50 (pls note allocated common fixed costs and reduction in contribution margin of other products not considered as those are not relevant for F27 Break even calculation.

Related Questions

Navigate

• Browse (All)
• Browse T
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.